The euro also fell on concern voters in Ireland will reject the European Union's new governing treaty designed to boost the strength of the 27-nation bloc. The dollar was poised for the largest weekly advance versus the yen since 2004 before a government report that may show U.S. inflation accelerated, giving the Federal Reserve more reason to raise interest rates.
The dollar advanced to $1.5319 per euro at 7:04 a.m. in New York, from $1.5439 yesterday. The dollar rose 3 percent this week, the most since the five days ending Jan. 7, 2005. The currency traded at 108.33 yen, from 107.96 yesterday. It has risen 3.1 percent this week, the biggest advance since February 2004. The euro fell to 165.95 yen, from 166.68.
The U.S. currency rebounded from a six-week low versus the euro on June 9 after Paulson said in an interview with CNBC that he would ``never'' rule out currency intervention. The dollar has fallen 13 percent against the euro in the past year as the Fed lowered its benchmark rate to 2 percent from 5.25 percent to prevent widening subprime losses from stalling economic growth.
The economic outlook has improved from a month ago and central bankers will combat any increase in inflation expectations, Fed Chairman Ben S. Bernanke said the same day. He also said on June 3 he's aware of the impact a falling currency can have on price expectations.
The last time the major industrialized countries intervened was on Sept. 22, 2000, when they bought the euro after it tumbled 27 percent from its 1999 debut. They last propped up the dollar in 1995, when it sank almost 20 percent in four months against the Japanese yen to a post-World War II low of 79.95. Central banks intervene in currency markets by arranging purchases or sales of foreign exchange.
The dollar has risen against all 16 of the most-traded currencies this week as a Commerce Department report yesterday showed U.S. retail sales increased 1 percent in May as Americans used their tax rebates to shop.
Consumer prices in the U.S. rose 0.6 percent last month after a 0.2 percent increase in April.
The U.S. currency held it gains even after the European Union's statistics office said labor costs rose 3.3 percent in the first quarter, the most since the second quarter of 2003. Inflation in Germany, Europe's largest economy, also accelerated more than initially reported in May as the cost of oil surged. Consumer prices, based on a harmonized European Union method, increased 3.1 percent from a year earlier, the Federal Statistics Office in Wiesbaden said today.